Canada to adopt national Low Carbon Fuel Standard

November 27, 2016 | Jim Lane

In Canada, Minister of Environment and Climate Change Catherine McKenna announced that Canada will adopt a national clean fuels standard, as an important step for climate action and the growth of Canada’s cleantech economy and green jobs.

This federal leadership builds on the early actions of British Columbia, Oregon and California, and will greatly improve availability of low carbon fuel choices and competition at the pump. A clean fuel standard would be flexible and promote the use of clean technology, lower carbon fuels, and promote alternatives such as electricity, biogas and hydrogen.

LCFS vs carbon tax or renewable fuel standards

The decision to adopt the first national clean fuels standard in the world is consistent with the guidance offered recently by Canadian and US non-governmental and industry organizations. British Columbia has already demonstrated that leadership in clean and renewable fuels can go hand in hand with economic growth. And a clean fuels standard complements the recent announcement by the US EPA that it is strengthening the US renewable fuel standard.

A clean fuels standard will achieve carbon reductions well beyond what can be achieved from a price on carbon alone. Unlike a price on carbon, which relies on making fuels more expensive to discourage their use, a clean fuel standard will stimulate direct investments in a variety of lower carbon fuel options. A clean fuels standard is particularly effective because all compliance costs are directed back into lower carbon solutions.

The target

The overall objective of a clean fuel standard would be to achieve annual reductions of 30 megatonnes (Mt) of GHG emissions by 2030. This reduction will provide a significant contribution towards achieving Canada’s commitment of 30 percent emission reduction below 2005 levels by 2030. This is like removing over 7 million vehicles from the roads for a year.

A national clean fuels standard will require fuel suppliers to progressively reduce the carbon pollution in their fuels, with annual reduction requirements within a specified overall timeframe. Environment and Climate Change Canada will consult with stakeholders to establish the reduction levels and timeframes.

Next steps

Environment and Climate Change Canada will publish a discussion paper in February 2017 to help guide consultations consisting of meetings, workshops, and technical working groups that will help inform the development of Canada’s clean fuel standard.

Popular and effective

“Our preliminary finding, “ noted leading Canadian NGO Clean Energy Canada, “is that a Canada-wide clean fuel standard could offer a very significant emission benefit, with potential reductions in the range of 30 million tonnes (Mt) in 2030, equivalent to taking over 6 million cars2 off the road that year. And 80% of respondents support or somewhat support Canada adopting a new clean fuel standard, to reduce the carbon emissions from producing and using gasoline and diesel fuel.”

Performance-based approach

The clean fuel standard would set requirements to reduce the lifecycle carbon intensities of fuels supplied in a given year, based on lifecycle analysis. By contrast to renewable fuel mandates, this approach would not prescribe the particular low-carbon fuel or technology that must be used; instead, it would focus on emission reductions. The clean fuel standard would result in decreased emissions while minimizing compliance costs.

Fuel suppliers have an array of options for meeting the clean fuel standard. They can employ lower carbon fuels blended into, or replacing, gasoline and diesel, or improve the emissions associated with upstream oil and gas extraction and refining. The new standard will also promote fuel switching to electric mobility and hydrogen fuel cells. This flexible, market-based approach will ensure a smoother transition from the starting point of today’s existing vehicles and fuels infrastructure.

The state of play in Canada today

Currently, the average renewable fuel blending in Canada’s fuels is over seven percent ethanol in gasoline, which exceeds the five percent level set out in the Renewable Fuels Regulations and about two percent renewable content in diesel fuel, which meets the regulatory level.

About Low Carbon Fuel Standards

A variety of regulatory approaches are used throughout the world to reduce the emissions related to the use of fuel. The Provinces of Ontario and Saskatchewan have been Canadian leaders with effective renewable fuels requirements since 2007. Other provinces have followed and adopted renewable fuel mandates, under which a minimum amount of renewable fuel is required to be blended into gasoline or diesel. Some jurisdictions (e.g., Alberta, Ontario) also require that the renewable fuels utilized meet a specific greenhouse gas (GHG) performance standard. British Columbia has led by implementing low-carbon fuel standards that require a reduction in the lifecycle GHG emissions intensity of the fuels supplied in a given year — basded on a model originally adopted by the US state of California.

Reactions from stakeholders

‘Canada has within its borders a complete set of time-tested approaches for reducing the carbon pollution in fuels”, stated Ian Thomson, President of Advanced Biofuels Canada. ”From this experience of over a decade, the Government of Canada has zeroed in on a proven, flexible regulatory tool. We believe they’ve made a smart choice, and set a goal – 30 million tonnes of reduction by 2030 – that will spur all parties to action.”

“Most Canadians do not know that we already produce at commercial scale the low carbon fuels and transportation technologies that are needed to take us well towards our climate goals. The technologies are proven, and many petroleum companies are making investments in them around the globe. In Canada, there is much more that we can do to participate in the global clean fuels economy. A Canadian standard will attract investment to scale up clean fuels growth and help make these fuels more available and drive down costs.”

Canada-wide organizational support’

Last week, a broad group of stakeholders urged the Minister to pursue a clean fuels standard. The coalition wrote

We applaud the government of Canada’s leadership over the past year towards feasible, effective solutions to climate change. Regarding your government’s efforts to address GHG emissions from transportation, we wish to share our perspective on two highly effective regulations, California’s Low Carbon Fuel Standard (LCFS), and Oregon’s Clean Fuels Program. Having the benefit of first-hand experience with these regulations, we write to express our strong endorsement of the potential for a national Clean Fuels Standard in Canada, and to offer our support.

Transportation sector emissions are challenging to address and require a broad portfolio of solutions, including electric vehicles, increased fuel efficiency, sustainable transportation systems and low carbon fuels. Achieving Canada’s long-term goals will almost certainly require significant contributions from all of these approaches. Fuel carbon intensity regulations like the LCFS are a highly effective mechanism for promoting the full suite of low-carbon fuels in a technology-neutral fashion. Progressive reduction requirements provide a strong market signal to fuel producers, who can adapt to changing market conditions, minimizing cost to the consumer.

Fuel carbon policies like the LCFS ensure a smooth transition to sustainable fuels by utilizing existing vehicles, infrastructure, and technology. In California, most compliance credit has been gained by blending low-carbon components into conventional fuels, thereby reducing emissions while maintaining compatibility with the existing vehicle fleet. Existing refiners and fuel suppliers can invest in low-carbon fuels to reduce their average carbon intensity or generate credits, or can innovate to help avoid stranded refining assets. This investment preserves existing jobs while providing capital for innovative advanced fuel providers.

California’s LCFS has reduced GHG emissions by more than 16.8 million metric tons since 2011. California fuel suppliers have banked over 7 million metric tons of extra reduction credits toward future obligations. The LCFS has also incentivized a reduction in the average carbon intensity of alternative fuels by over 20 percent. Over two hundred businesses have registered as participants in California’s LCFS credit market, generating over $176 million (USD) of credit transactions, which represents a substantial pool of financial incentive for alternative fuel providers..

LCFS credit transactions transfer money from one fuel provider to another, which keeps the financial effects of the credit market within the fuel sector and insulates consumers from increases in fuel price. In California, price increases at the pump have been negligible, averaging far less than 4 cents per gallon (or about 1 cent per liter) and remain below that threshold even now, as the program’s stringency begins its planned increase.

California’s LCFS has provided incentive for advanced technologies to dramatically expand into transportation markets and has promoted innovative solutions for sustainable transportation. For example, LCFS credits have helped transit districts fund conversions to zero-emission electric or hydrogen buses, incentivized workplace electric vehicle charging programs, and provided critically needed support for biogas production at dairies, which then use the produced gas to fuel their delivery fleets. LCFS also provides significant benefits to air quality, since, in the overwhelming majority of cases, low-carbon alternative fuels produce fewer air pollutant emissions than their petroleum counterparts.

Jennifer Case, Chair, California Biodiesel Alliance
Eileen Wenger Tutt, Executive Director, California Electric Transportation Coalition
Thomas Lawson, President, California Natural Gas Vehicle Coalition
John Boesel, President and CEO, CALSTART
John Shears, Research Coordinator, The Center for Energy Efficiency and Renewable Technologies (CEERT)
Carol Lee Rawn, Director/Transportation Program, Ceres
Harrison Clay, President, Clean Energy Renewables
V. John White, Legislative Director, Clean Power Campaign
Meredith Connolly, Oregon Policy Manager, Climate Solutions
Johannes D. Escudero, Chief Executive Officer, Coalition for Renewable Natural Gas
Mary Solecki, Western States Advocate, Environmental Entrepreneurs (E2)
Graham Noyes, Executive Director, Low Carbon Fuels Coalition
Don Scott, Director of Sustainability, National Biodiesel Board
Simon Mui, Senior Scientist, Natural Resources Defense Council
Colin Murphy, Climate Policy Advocate, NextGen Climate America
Jana Gastellum, Program Director/Climate, Oregon Environmental Council
Neil Koehler, CEO/Co-founder, Pacific Ethanol
Jeremy Martin, Ph.D., Senior Scientist & Fuels Lead, Union of Concerned Scientists
Johanna Miller, Energy Program Director, Vermont Natural Resources Council
Sasha Pollack, Climate and Clean Energy Program Director, Washington Environmental Council